Managing a business, small or large, often leaves little time to keep track of national, regional or local economic indicators that might affect your industry and your company.
However, there are a lot of things, such as interest rates, inflation, gross national product, stock prices and consumer confidence that have a direct impact on the profitability of your business and your relationships with vendors, customers and employees.
Throughout the past few years, we have all witnessed the financial ups and downs of the economy. Today, everyone is facing the affects of the current economic conditions. Some industries are affected more than others.
In our local area, the housing industry, for example, is experiencing a slowdown. Depending on your company’s specific situation, re-tooling to survive this downturn might be your objective. If you aren’t asking yourself what you should be doing to position yourself to maximize your financial security, you should be.
With the most recent changes in the economy, the way you are running your business and your financial management strategies might need a change.
How should you go about making these financial changes in order to succeed in a tough economy? Here are a few key points.
Most business owners begin by managing the income statement. While reducing expenses is a good idea when times are tough, business owners must focus on managing the balance sheet first. The first objective might be survival, not creating more income.
The preparation of profit and cash flow projections is vital to your success. Your profit and cash flow projections need to be realistic and not too optimistic.
Business owners in tough financial straits believe that if they do not talk about their problems, they will just go away or, even worse, they act like the problems do not exist. Strategic communication with your lenders, vendors and employees is critical to your success. An open dialogue has to be honest and ongoing. Your strategy must be shared with your lenders, and they should be kept updated with periodic progress reports.
Reduce additional inventory if possible. Excess inventory that is slow to sell can keep you from successfully moving forward during a downward time in the economy. Taking time to analyze your inventory, can put your money in the bank instead of on your shelves.
Measure margins. Review your product pricing, because if your product is consistently selling quickly, it may be under priced. You can also use this opportunity to negotiate with vendors and suppliers for better prices.
Monitor the overhead. What overhead costs can be reduced or eliminated? Many times these costs, as well as standing orders and direct debits, are overlooked, and money is spent on things that are no longer needed.
Market and promote your business. If you’re cutting your company’s marketing budget during a tough time, it may not be the best move. Research has shown that the public remembers the companies that have continued to advertise during a slowdown in the economy. Find ways that are less expensive to promote your company, instead of depleting the marketing budget in order to reduce expenses.
Get aggressive with collections. Generally, when business is good, companies can become sluggish about collecting payments. This habit can become dangerous during a downturn. It’s important to safeguard your business against the effects of a prolonged economic downturn by being tough with customers, even though it may be unpleasant.
Find your marketplace. Where is your product or service needed most? Is your business advertising with the correct businesses and clientele? Is your company’s branding correctly reflecting what your business does in the community? If this is not the case, marketing and advertising won’t help business whether the economy is in a slump or not.
The fact that conditions are changing opens up opportunities for resourceful businesses to outsmart other competitors who carry on business as usual or are unable to adapt quickly during a downturn. The current downturn in the economy is a good opportunity to position your business well and get ahead.
In the end, the best way to successfully get through an uncertain economy is to protect the assets that you have and reduce expenses. Keep in mind that downturns are normal, temporary phases of the economic cycle followed historically by ever-increasing prosperity. If financial discipline is maintained when times are tough, you’ll most likely be way ahead of the game when the financial climate turns around.
For help with questions about your business’ issues in the current economy, contact your CPA or business consultant.
Greg Papineau CPA is audit director of BiggsKofford P.C. He can be reached at 579-9090 or firstname.lastname@example.org.